Palestinian Prime Minister Rami Hamdallah has offered to step down in a move which may pave the way for a unity government agreed between President Mahmoud Abbas and Hamas, the Palestinian news agency WAFA has reported.

Hamdallah's offer on Friday came a day after Israel suspended US-sponsored peace talks with the Palestinians in response to a reconciliation deal between the rival Palestinian factions Hamas and Fatah.

Hamdallah, whose role is limited to domestic governance, offered his resignation last year in a dispute over his powers, but retracted it shortly afterwards.

The reconciliation pact agreed between Hamas and Abbas's Fatah party on Wednesday envisions agreeing upon a government of independent technocrats within five weeks and holding elections six months later.

No national polls have been held since Hamas won parliamentary elections in 2006, leading to a brief war between Hamas and Fatah the next year in which the armed group seized control of the Gaza Strip.

In the political vacuum which followed, Abbas, who heads the Palestinian Authority and Fatah, personally appointed Hamdallah and his predecessor Salam Fayyad, while Hamas's own prime minister, Ismail Haniyeh, has served in Gaza.

'Can't have both'

In response to Wednesday's reconciliation pact, Israeli Prime Minister Benjamin Netanyahu said Abbas could "have peace with Israel or a pact with Hamas but he can't have both".

He said his country could not negotiate with an administration that embraces an armed group sworn to Israel's destruction.

"As long as I'm prime minister of Israel, I will never negotiate with a Palestinian government that is backed by Hamas terrorists that are calling for our liquidation," Netanyahu said on Thursday.

US President Barack Obama, whose administration dragged the two sides back to the negotiating table last July after a three-year hiatus, called the Palestinian unity deal "unhelpful".